Higher year-on-year crude oil prices were expected to weigh on the March quarter financial results of Indian airlines. That played out as expected. All three listed airlines—SpiceJet Ltd, Jet Airways (India) Ltd and InterGlobe Aviation Ltd (which runs IndiGo)—felt the heat from higher crude prices during the quarter. Fuel costs as a percentage of revenue increased at least 1,000 basis points each on a year-on-year basis for each of the three airlines. One basis point is one-hundredth of a percentage point.

Profits were weaker than expected. IndiGo’s pre-tax and exceptional item profit declined 24% from the same period last year despite a sharp jump in other income. Jet, too, benefited from strong other income growth. But that did not help profit growth materially. Jet’s pre-tax and exceptional item earnings dropped almost 90% year-on-year. SpiceJet fared relatively better, with the yardstick declining 6%.

What’s more, analysts maintain SpiceJet’s revenue mix is superior to that of peers. Despite the correction in yields, SpiceJet’s RASK continues to be much superior to its peer and market leader IndiGo (by Rs0.22 ASKM in 4Q), though this gap has decreased from Rs0.35 in 9MFY17. As IndiGo expands its network (especially with planned ATRs on tier-II cities), this spread is likely to narrow further, pointed out SBICAP Securities Ltd in a report on 5 June.

ASKM is short for available seat kilometres and RASK is short for revenue per ASKM.

Jet’s international segment suffered in the December quarter due to demand issues in the Gulf Cooperation Council (GCC) countries. The March quarter did not bring any relief for Jet’s international segment and profitability remained weaker. While the domestic segment performance was relatively better, it wasn’t really impressive.

What of the future?

It augurs well that the outlook on pricing is better for this financial year. As ICICI Securities Ltd pointed out in its SpiceJet results review report, “While a weak performance was in line with expectations for Q4, that IndiGo could actually report flat fares for February/March and Jet could report a 2.2% year-on-year increase in domestic fares in Q4 point to an available pricing power in the Indian aviation space, especially after three successive years of fare decline."

Of course, investors will have to keep a tab on capacity addition in the industry. Further, crude prices aren’t expected to rise sharply in a hurry in the near future and domestic passenger growth is decent. In general, these factors would likely support aviation stocks, which have outperformed the benchmark Sensex so far this calendar year.